BMW manufactures most of its cars in Germany but its sales are in the U.S., Eurozone and the UK, with the US being its largest market. Sales to the U.S. and UK are invoiced in US dollars and pound sterling, respectively. Its major competitors are based in the US, UK and Japan.

a. Explain the types of foreign currency exposure faced by BMW.

b. What is the likely impact on BMWs profitability of an appreciation in the value of the US$?

c. If the value of the Euro were to fall relative to the US $ what advice would you give to BMWs Foreign Exchange Risk Manager in relation to its hedging strategy

d. What non-derivative and non-financial strategies might BMW employ that would reduce its economic exposure on US and UK car sales?